Net income for the first quarter of 2014 was $588 thousand, compared to $605 thousand for the corresponding period in 2013. After preferred stock dividends and related accretion adjustments of zero and $169 thousand for the first quarter of 2014 and 2013, respectively, net income available to common shareholders was $588 thousand for the first quarter this year compared to $436 thousand for the first quarter last year, representing an increase of $152 thousand, or 35%. There were no preferred stock dividends or related accretion adjustments during the first quarter of 2014 because the Company redeemed all of its outstanding preferred stock in December 2013. The Company again achieved earnings per diluted share of $0.14 per share for the first quarter of 2014, the same as for the first quarter of 2013, even though the Company had about one million more shares outstanding at March 31, 2014 (4,117,673 shares) than it did on March 31, 2013 (3,089,957 shares).

Financial highlights

Achieved ninth consecutive quarter of profitability, with net income of $588 thousand.

Nonperforming assets decreased 54% year over year.

Noninterest bearing deposits increased 9.5% year over year.

The number of checking and savings accounts increased by 5% year over year.

Loans grew by $8.6 million, or 2.9%, during the first quarter and are up by $41.3 million year over year.

Book value of Company stock increased 2.2% during the first quarter, to $8.68 per share.

Balance sheet

As of March 31, 2014, the Company had total assets of $398.5 million, compared to $394.2 million on December 31, 2013 and $391.8 million on March 31, 2013. This represents an increase of $4.3 million, or 1.1%, over year end and an increase of $6.7 million, or 1.7%, year over year.

The investment portfolio was $52.6 million as of March 31, 2014, down $1.7 million, or 3.2%, from $54.4 million at December 31, 2013. The decrease reflects a shift in the deployment of capital from investments to loans. The net unrealized gain in the portfolio was $1.2 million, which was 24% higher than the $929 thousand net unrealized gain at year-end 2013.

The net loan portfolio was $305.5 million on March 31, 2014. This was up $8.6 million, or 2.9%, from year end and was up $41.3 million, or 15.6%, from March 31, 2013, when the loan portfolio was $264.2 million. The increase from prior periods primarily reflects increased commercial lending activity. "I am very pleased that we have been able to grow our loan portfolio," President and CEO Randall Fewel commented, "because that translates to increased interest income."

Deposits at March 31, 2014 were $336.5 million, an increase of $15.9 million, or 5.0%, compared to December 31, 2013, and an increase of $2.1 million, or 0.6%, compared to March 31, 2013. Core deposits (all deposits except time deposits) ended the quarter at $258.7 million, which is 76.9% of total deposits. This represents an increase of $2.9 million, or 1.1%, since the beginning of the year and an increase of $2.4 million, or 1.0%, over the $256.3 million level on March 31, 2013.

Noninterest bearing deposits, a subset of core deposits, were $85.7 million at quarter end, representing 25.5% of total deposits. This compares to noninterest bearing deposits of $78.2 million, or 23.4% of total deposits, at March 31, 2013, and to $83.1 million, or 25.9% of total deposits, at year-end 2013. The level of noninterest bearing deposits at quarter end represented growth of $7.5 million, or 9.5%, compared to March 31, 2013.

Asset quality, provision and allowance for loan losses

The Bank's nonperforming assets ("NPAs") were $4.8 million at quarter end, representing 1.19% of total assets. NPAs are defined as loans on which the Bank has stopped accruing interest and includes foreclosed real estate. NPAs at the end of 2013 were $5.3 million, representing 1.34% of total assets, and at March 31, 2013, NPAs were $10.3 million, representing 2.62% of total assets. "Converting nonperforming assets to performing, or earning, assets also helps increase interest income," Fewel said. "This helps offset the pressure on our net interest margin and on our noninterest income. It also helps because there are legal expenses and other collection costs associated with NPAs, so reducing NPAs has even more of a positive effect for us."

Net charge-offs were $149 thousand for the three-month period ending on March 31, 2014, compared to $180 thousand for the comparable period in 2013. The provision for loan losses was $250 thousand for the three -month period ending on March 31, 2014, compared to $244 thousand for the comparable period in 2013. As of March 31, 2014, the allowance for loan losses ("ALLL") was $5.9 million, or 1.93% of gross loans. This is slightly higher than on December 31, 2013, when it was $5.8 million and represented 1.91% of the loan portfolio, and is $580 thousand higher than a year ago when the ALLL was $5.3 million and represented 1.97% of gross loans.

Capital

Shareholders' equity increased $800 thousand during the first quarter of 2014. The increase reflects earnings retention and an increase in accumulated other comprehensive income. The book value of the Company stock was $8.68 per share of common stock on March 31, 2014, up $0.19, or 2.2%, over the $8.49 per share book value on December 31, 2013.

The Bank continues to maintain capital levels in excess of the requirements to be categorized as "well-capitalized" under applicable regulatory standards. The Bank's Tier 1 leverage capital to average assets ratio at March 31, 2014 was 11.2%, compared to 10.7% on March 31, 2013; the regulatory minimum to be considered well-capitalized is 5.0%. The Bank's total capital to risk-weighted assets ratio at March 31, 2014 was 13.6% compared to 14.2% on March 31, 2013; the regulatory threshold for this ratio for a bank to be considered well-capitalized is 10.0%.

Total revenue

Total revenue for the Company was $4.4 million for the first quarter of 2014, compared to $5.0 million for the first quarter of 2013, representing a decrease of $555 thousand, or 11.1%. Total revenue is defined as net interest income plus noninterest income. Net interest income was down $47 thousand and noninterest income was down $508 thousand in the first quarter of 2014 compared to the same period in 2013. "The big decline in total revenue year over year was largely due to a huge drop off in mortgage refinance activity," Fewel commented. "Our gains from sale of mortgage loans dropped from $504 thousand in the first quarter last year to $159 thousand in the first quarter this year – a decline of 68%."

Net interest income

Net interest income was $3.7 million for the quarter ended March 31, 2014, a decrease of $47 thousand, or 1.3%, from the comparable period in 2013. Included in the first quarter of 2013 is $273 thousand in nonrecurring loan interest income. The net interest margin (interest income minus interest expense, divided by average earning assets) decreased from 4.11% in the first quarter of 2013 to 4.03% in the first quarter of 2014.

Noninterest income

Noninterest income decreased by $508 thousand, or 39.4%, from $1.3 million in the first quarter last year, to $780 thousand in the first quarter this year. Noninterest income was 0.79% of average assets in the first quarter this year, compared to 1.30% last year. This decrease was related to lower service charges on deposits, lower gains from sales of loans, lower gains realized on investment securities, and lower operating income generated from foreclosed real estate properties. The Bank recorded $21 thousand in realized gains on investment securities for the three-month period ended March 31, 2014, compared to $106 thousand in realized gains for the comparable period of 2013.

Noninterest expense

Noninterest expense for the first quarter decreased by $514 thousand, or 13.2%, from $3.9 million last year to $3.4 million this year. As a percentage of average assets, noninterest expense decreased from 3.94% in the first quarter of 2013 to 3.44% for the comparable period in 2014. Nearly all categories of noninterest expenses were down year over year, with the most significant reductions resulting from lower costs related to operating, maintaining or selling foreclosed real estate properties.

Summary

Fewel summarized the quarterly results by saying, "After the outstanding year we had in 2013, it is particularly gratifying to achieve net earnings in the first quarter this year that are 35% better than the first quarter last year. Fully redeeming all the preferred stock in December that we had issued in 2009 under the U.S. Treasury's Capital Purchase Program is a big monkey off our back. Not only did we eliminate the dividend and related costs of $169 thousand per quarter, but we avoided the dividend increase from 5% to 9% that was scheduled to happen in February this year. Our net savings going forward will be about $165 thousand per quarter."

Fewel concluded by saying, "While we are extremely pleased with our first quarter results, I would be remiss in not noting that there are many challenges facing community banks today, including the overzealous regulatory environment and its disproportionate impact on smaller banks, the tepid housing market, and the possibility of a rapid move upward in interest rates. We are doing everything we can at INB to deal with these issues and to position the Bank for growth and improved earnings."

About Northwest Bancorporation, Inc.

Northwest Bancorporation, Inc. is the parent company of Inland Northwest Bank, a state-chartered community bank which operates seven branches in Spokane County, Washington, and four branches in Kootenai County, Idaho. INB specializes in meeting the financial needs of individuals and small to medium-sized businesses, including professional corporations, by providing a full line of commercial, retail, mortgage and private banking products and services. More information about INB can be found on its website at www.inb.com. The Company's stock is listed on the OTC Markets, www.otcmarkets.com, under the symbol NBCT.

Forward-Looking Statements

This release contains forward-looking statements that are not historical facts and that are intended to be "forward-looking statements" as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, but are not limited to, statements about the Company's plans, objectives, expectations and intentions and other statements contained in this release that are not historical facts and pertain to the Company's future operating results. When used in this release, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. Actual results may differ materially from the results discussed in these forward-looking statements, because such statements are inherently subject to significant assumptions, risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. These include but are not limited to: the possibility of adverse economic developments that may, among other things, increase default and delinquency risks in the Company's loan portfolios; shifts in interest rates; shifts in the rate of inflation; shifts in the demand for the Company's loan and other products; unforeseen increases in costs and expenses; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; and changes in laws, regulations and the competitive environment. Unless legally required, the Company disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Northwest Bancorporation, Inc.

Consolidated Statements of Financial Condition

(Unaudited)

Mar. 31

Dec. 31,

Mar. 31

(dollars in thousands)

2014

2013

2013

Assets:

Cash and due from banks

$ 13,487

$ 13,951

$ 12,845

Interest bearing deposits

1,240

2,129

11,274

Time deposits held for investment

2,655

2,655

2,895

Securities available for sale

49,975

51,706

69,406

Federal Home Loan Bank stock, at cost

1,183

1,194

1,227

Loans receivable, net

305,550

296,938

264,234

Loans held for sale

288

1,139

3,574

Premises and equipment, net

15,376

15,614

16,469

Accrued interest receivable

1,371

1,261

1,503

Foreclosed real estate

1,315

1,675

2,289

Bank-owned life insurance

4,190

4,160

4,069

Other assets

1,906

1,781

2,037

Total assets

$ 398,536

$ 394,203

$ 391,822

Liabilities:

Deposits:

Noninterest bearing deposits

$ 85,679

$ 83,063

$ 78,222

Interest bearing transaction and savings deposits

173,043

172,754

178,062

Time deposits

77,801

64,807

78,110

336,523

320,624

334,394

Accrued interest payable

127

131

686

Federal funds purchased

--

12,170

--

Borrowed funds

22,362

23,256

12,952

Other liabilities

3,767

3,065

5,417

Total liabilities

362,779

359,246

353,449

Shareholders' equity:

Preferred stock

--

--

10,934

Common stock

32,718

32,657

26,125

Retained earnings (accumulated deficit)

2,277

1,687

(476)

Accumulated other comprehensive income

762

613

1,790

Total shareholders' equity

35,757

34,957

38,373

Total liabilities and shareholders' equity

$ 398,536

$ 394,203

$ 391,822

Northwest Bancorporation, Inc.

Consolidated Statements of Operations

(Unaudited)

Three Months Ended

Mar. 31,

Dec. 31,

Mar. 31,

(dollars in thousands, except per share data)

2014

2013

2013

Interest and dividend income:

Loans receivable

$ 3,792

$ 3,750

$ 3,787

Investment securities

393

378

434

Other

10

14

16

Total interest and dividend income

4,195

4,142

4,237

Interest expense:

Deposits

343

348

448

Borrowed funds

198

163

88

Total interest expense

541

511

536

Net interest income

3,654

3,631

3,701

Provision for loan losses

250

646

244

Noninterest income:

Service charges on deposits

226

265

256

Gains from sale of loans, net

159

237

504

Gain on investment securities, net

21

2

106

Other noninterest income

374

411

422

Total noninterest income

780

915

1,288

Noninterest expense:

Salaries and employee benefits

1,782

1,729

1,838

Occupancy and equipment

341

310

353

Depreciation and amortization

293

296

308

Advertising and promotion

102

91

84

FDIC assessments

66

38

128

Loss (gain) on foreclosed real estate, net

(63)

(318)

81

Other noninterest expense

864

964

1,107

Total noninterest expense

3,385

3,110

3,899

Income before income taxes

799

790

846

Income tax expense

211

218

241

NET INCOME

$ 588

$ 572

$ 605

Preferred stock dividends and discount accretion, net

--

166

169

Net income available to common shares

$ 588

$ 406

$ 436

Earnings per common share - basic

$ 0.14

$ 0.12

$ 0.14

Earnings per common share - diluted

$ 0.14

$ 0.12

$ 0.14

Weighted average common shares outstanding - basic

4,117,673

3,336,652

3,089,957

Weighted average common shares outstanding - diluted

4,189,288

3,398,990

3,141,777

Northwest Bancorporation, Inc.

Key Financial Ratios and Data

(Unaudited)

Three Months Ended

Mar. 31

Dec. 31,

Mar. 31

(dollars in thousands, except per share data)

2014

2013

2013

PERFORMANCE RATIOS(annualized)

Return on average assets

0.60%

0.41%

0.44%

Return on average equity

6.65%

4.37%

4.57%

Yield on earning assets

4.62%

4.57%

4.70%

Cost of funds

0.82%

0.77%

0.80%

Net interest margin

4.03%

4.01%

4.11%

Noninterest income to average assets

0.79%

0.92%

1.30%

Noninterest expense to average assets

3.44%

3.14%

3.94%

Provision expense to average assets

0.25%

0.65%

0.25%

Efficiency ratio(1)

76.3%

68.4%

78.2%

Mar. 31

Dec. 31,

Mar. 31

2014

2013

2013

ASSET QUALITY RATIOS AND DATA

Nonaccrual loans

$3,446

$3,614

$7,981

Foreclosed real estate

$1,315

$1,675

$2,289

Nonperforming assets

$4,761

$5,289

$10,270

Loans 30-89 days past due and on accrual

$3,719

$1,279

$1,209

Restructured loans

$8,392

$8,375

$8,611

Allowance for loan losses

$5,904

$5,803

$5,324

Nonperforming assets to total assets

1.19%

1.34%

2.62%

Allowance for loan losses to total loans

1.93%

1.91%

1.97%

Allowance for loan losses to nonaccrual loans

171.33%

160.57%

66.71%

Net charge-offs

$149 (2)

$180 (2)

Net charge-offs to average loans (annualized)

0.19% (2)

0.26% (2)

CAPITAL RATIOS AND DATA

Common shares outstanding at period end

4,117,673

4,117,673

3,089,957

Book value per common share

$8.68

$8.49

$8.88

Tangible common equity

$35,757

$34,957

$27,439

Shareholders' equity to total assets

9.0%

8.9%

9.8%

Total capital to risk-weighted assets (3)

13.6%

13.4%

14.2%

Tier 1 capital to risk-weighted assets (3)

12.4%

12.1%

13.0%

Tier 1 leverage capital ratio (3)

11.2%

11.0%

10.7%

DEPOSIT RATIOS AND DATA

Core deposits (4)

$258,722

$255,817

$256,284

Core deposits to total deposits

76.9%

79.8%

76.6%

Noninterest bearing deposits to total deposits

25.5%

25.9%

23.4%

Net loan to deposit ratio

90.8%

92.6%

79.0%

Notes:

(1) Efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).

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